Danish Bank Packages 11 November 2011
Danish bank packages Timeline, contents and purpose of the bank packages (BP I to IV) BP I: Stability Package (8 October 2008 to 30 September 2010) Unlimited state guarantee for depositors and senior unsecured debt. Fee of DKK 15 bn and payment of DKK 10 bn for loan losses at failed banks, bringing total cost to DKK 25 bn for the Danish banking sector. BP II: Credit Package (18 January 2009) DKK 100 bn of hybrid capital and DKK 180 bn of state-guaranteed senior funding for the Danish financial sector. BP III: Winding up distressed banks (1 October 2010) Distressed banks are closed down over a weekend. All unsecured and uninsured creditors, including depositors with deposits above DKK 750,000 (EUR 100,000), subject to a haircut. Guarantee Fund for Depositors and Investors ensures covered deposits under DKK750,000. BP IV: Consolidation Package (8 September 2011) New consolidation process, state-guaranteed funding as part of mergers, changed funding of Guarantee Fund for Depositors and Investors (GF) and designation of national SIFIs. 2
Winding up of distressed banks under BP III transfers part of losses to the Guarantee Fund for Depositors and Investors How does the Danish Guarantee Fund for Depositors and Investors (GF) work? Coverage GF covers deposits up to DKK 750,000 (EUR 100,000) for each depositor. Coverage is net of the depositor s liabilities. Financing of GF Variable payments based on GF s actual losses. To be changed with BP IV. Contributions to GF Each member bank s contribution to GF is based on the bank s share of total covered net deposits of GF member banks. Risks in GF system under BP III Failure of a bank may lead to volatile and extraordinarily large costs for other member banks owing to the ex-post financing mechanism. Could in worst case have systemic consequences. 3
Effects of Bank Package III Danish bank failures under BP III and unintended consequences of losses being covered by GF Two bankruptcies in 2011 Amagerbanken went down on 6 February, and Fjordbank Mors on 26 June. Haircuts on senior creditors of 16% and 26% respectively. Downgrading of Danish banks After Amagerbanken went down, Moody s rating agency lowered the ratings of a number of Danish banks by up to two notches because of less implicit state support. Difficult funding situation for Danish banks Closed funding markets for smaller and medium-sized Danish banks. Higher funding costs for bigger Danish banks. Denmark became frontrunner with its new resolution regime Denmark implemented a system for winding up distressed banks ahead of the rest of Europe. It was the first country to apply a haircut to senior creditors. 4
Contents of Bank Package IV: four initiatives* BP IV supplements BP III and includes two initiatives intended to avoid the resolution of distressed banks through BP III Consolidation process 1. Distressed bank taken over by a non-distressed bank with compensation** 2. Distressed bank split into a green bank and a red bank; the green bank is sold off and the red bank is taken over by Financial Stability with compensation** State-guaranteed funding as part of a merger 1. State guarantee on existing senior unsecured funding (up to DKK 10 bn) 2. Extension of existing individual state guarantees (up to three years and DKK 40 bn) with higher guarantee fee Guarantee Fund for Depositors and Investors (not yet implemented) 1. Insurance scheme with annual premium payments (ex-ante) 2. Funds to be built up over a longer period 3. Potential deficit covered by an interim state guarantee Definition of national SIFIs 1. Preparation of Danish legislation on the basis of forthcoming EU regulation 2. Criteria, including any additional requirements for SIFIs such as higher capital requirements and expanded supervision, not yet determined * The description of the contents is based on a political agreement that took effect on 8 September; the legislation has not yet been passed. **Compensation consists of the Danish State haircut on state guaranteed loans and GF liability for haircut on covered deposits. 5
Purpose of Bank Package IV Intended effects of BP IV Consolidation Incentives, primarily for smaller and medium-sized banks in Denmark, for consolidation into bigger entities. Access to funding Sector consolidation and stable rating outlook will improve access to funding for the majority of Danish banks. Ratings Moody s and S&P have been positive towards BP IV, specifically the plan to designate SIFIs, and this could result in upgrades or a stable rating outlook. Healthy Danish banking sector Consolidation in the sector will create stronger players with better access to funding and will ensure a healthy competitive environment, which in turn will create a stronger banking sector that benefits all players. 6
Danish bank packages cost for Danske Bank Danske Bank s participation in BP I to IV BP I: Stability Package Quarterly fee of DKK 625 m and DKK 3.4 bn of loan losses at other banks. A total of DKK 8.4 bn over two years. BP II: Credit Package DKK 24 bn state hybrid for Danske Bank and 2 bn for RD* annual net cost of DKK 1.7 bn. DKK 37 bn of government-guaranteed bonds** with 80 bp fee annual cost of DKK 300 m. BP III: Winding up distressed banks Cost of DKK 0.7 bn for Danske Bank for Amagerbanken s and Fjordbank Mors bankruptcies. Subsequently Moody s downgraded Danske Bank two notches, and Danske s CDS widened. BP IV: Consolidation Package Cost of Max Bank resolution was DKK 0.2bn through the GF. The proposed ex-ante premium payment to fund the GF has not yet been implemented. * DKK 24 bn hybrid at Danske Bank can be called in May 2014, and DKK 2 bn hybrid at RD can be called in May 2012. ** Danske Bank s government-guaranteed bonds mature in June and August 2012. 7
Case of Max Bank the first resolution under BP IV Resolving Max Bank following increased solvency requirements from the Danish FSA Weekend of October 8-10 The activities of Max Bank were transferred to Financial Stability, that at the same time sold the healthy parts (the green bank) to Sparekassen Sjælland, another regional Danish bank. No bail-in Neither depositors nor senior debt holders suffered any losses from haircuts. Compensation The GF and the Danish State each compensated Financial Stability by what would have been their losses in case of bankruptcy or resolution under BP III. Cost for Danske Bank Danske Bank contributed DKK 0.2bn to the GF. 8
Disclaimer Important Notice This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of Danske Bank A/S in any jurisdiction, including the United States, or an inducement to enter into investment act4ity. No part of this presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. The securities referred to herein have not been, and will not be, registered under the Securities Act of 1933, as amended, and may not be offered, exercised or sold in the United States absent registration or an applicable exemption from registration requirements. References to a potential share offering by Danske Bank are included herein pursuant to Rule 135c of the Securities Act of 1933, as amended. This presentation contains forward-looking statements that reflect management s current views with respect to certain future events and potential financial performance. Although Danske Bank believes that the expectations reflected in such forwardlooking statements are reasonable, no assurance can be g4en that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of various factors many of which are beyond Danske Bank s control. This presentation does not imply that Danske Bank has undertaken to revise these forward-looking statements, beyond what is required by applicable law or applicable stock exchange regulations if and when circumstances arise that will lead to changes compared to the date when these statements were provided. 9